We Need the Legal Entity Identifier
I attended a Global Legal Entity Identifier Foundation (GLEIF)/Data Coalition event on October
24: “GLEIF Washington Forum: Accelerating into a Digital Future: Simplifying Entity
Identification for the Digital Age”. If you are unfamiliar with the LEI, this is what GLEIF says
about LEI:
“The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code based on the ISO 17442
standard developed by the International Organization for Standardization (ISO). It connects to
key reference information that enables clear and unique identification of legal entities
participating in financial transactions. Each LEI contains information about an entity’s ownership
structure and thus answers the questions of 'who is who’ and ‘who owns whom’. Simply put, the
publicly available LEI data pool can be regarded as a global directory, which greatly enhances
transparency in the global marketplace.”
So unlike a tax number or stock ticker or other common shortcuts for an organization’s identity,
LEI seeks to create a unique fingerprint independent of region or purpose or characteristic.
Here’s Magna Internationals’ LEI: 95RWVLFZX6VGDZNNTN43. There are ultimately 14 entities
reporting up to that entity. I know this from a very useful search tool at
https://search.gleif.org/#/search/ .
I have included this information in the midst of my “original goals for XBRL” series even though
it directly wasn’t an original goal, although accountability through digital signatures was.
However, the power of data with a “laser pointer” at an organization permeates the business
reporting supply chain.
I have two legacy situations - one at the detailed level and one at the reporting level - where the
pervasive use of such a fingerprint could be powerful. The newer situation, of course, is
blockchain. If we want auditability and traceability, we don’t want to have ambiguity in
identification. I’m imagining there may even be ways to create hashes of the LEI for one way
proveability.
Anyway, for XBRL GL, one of the early success stories was an early adopter who used XBRL
GL to make the output of different accounts payable systems more comparable. Using a
common coding system for the vendor number from the start (e.g, LEI) would make this
identification child’s play.
The other is an older vision of mine not yet realized. The importance of certain relationships with
a reporting company are pretty well known. Related party transactions are one area. Another is
major customers. The latter resonated with me.
Image if all major customer disclosures identified the customer with the LEI. You would instantly
have an unambiguous, analyzable network of interrelationships. Is there a disaster that will
impact companies in a specific region directly? You will now be able to unambiguously trace the
impact one, two, three steps away. Is an industry failing? You will now be able to trace the
potential impact on those organizations that thrived with those parties as customers.
Finding company - and intercompany - data with laser accuracy appears to be on its way. Some
very powerful stories were shared in DC.
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